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Morning Commentary

Market Sell-Off Tougher Than Fire and Fury

By Charles Payne, CEO & Principal Analyst
8/11/2017 9:05 AM
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Yesterday, President Trump indicated that his “fire and fury” comment wasn’t tough enough, and perhaps a new phrase is needed to make Kim Jong-un understand how dangerously he’s pushing North Korea to the carnage. Those comments spooked a market already on the run, resulting in all the major indices closing at the low of the session on Thursday.

Even if President Trump hadn’t weighed in, there was a greater-than-average chance of accelerated selling into the close. The sell-first-ask-questions-later mentality has devastating consequences beyond the price discovery and making market bottoms tough to decipher. While major indices are only down fractionally, the big chunks that were given up yesterday generated a sense of panic.

On that note, there was no place to hide; only the safe haven of utilities found buyers.

Sector Performance

% Change

S&P 500 Index (SPX)

-1.37%

 

Consumer Discretionary (XLY)

-1.39%

 

Consumer Staples (XLP)

-0.35%

 

Energy (XLE)

-1.07%

 

Financials (XLF)

-1.62%

 

Health Care (XLV)

-1.13%

 

Industrials (XLI)

-1.24%

 

Materials (XLB)

-1.14%

 

Real Estate (XLRE)

-0.83%

 

Technology (XLK)

-1.88%

 

Utilities (XLU)

 

+0.26%

Bad Breadth

I pointed to market internals on Wednesday (and incorrectly populated the table – ugh), underscoring how the foundation of the market was breaking down. This is a development that began two months ago and was masked by gains in names such as Goldman Sachs (GS), Boeing (BA), and Amazon (AMZN).

Without coattails and heavily weighed names leading the way, it was pure carnage. I have to admit I like when great stocks get real cheap real fast. At a certain point, the main source of downside risks is raw emotions, which means the worst an investor could do is to get in too early.

Market Breadth

NYSE

NASDAQ

Advancers

393

602

Decliners

2,589

2,325

Up Volume

111.4 million

407.7 million

Down Volume

743.1 million

1,750.9 million

New 52 Week Highs

60

32

New 52- Week Lows

159

148

 

Technical Breakdown

Also, I pointed out critical support points of the major equity indices, but only the Dow held above its 50-day moving average.

The Dow Jones Industrial Average closed 300 points above its 50-day moving average of 21,561, and will clearly benefit as a safe haven.

The NASDAQ closed slightly below its 50-day moving average, which needs to find a way of straddling 6,263, or it would be vulnerable to 5,888. Note: I mentioned hedging with ProShares UltraPro Short Russell2000 (SRTY) two months, so I am hopeful you have that as insurance.

The S&P 500 also slipped under its 50-day moving average and now hovers above its 200-day moving average of 2,347.

Course of Action

I know headlines blame the sell-off on President Trump’s tough talk on North Korea, but I find comfort in such leadership. This is a market that’s wanted and needed to blow off steam for some time. The key is to remember that fundamentals haven’t changed. The essence of investing is looking beyond headlines and taking advantage of opportunities.

Meanwhile, we closed several positions on Thursday, including Live Nation Entertainment (LYV) before Amazon announced it was getting into the business, lopping three bucks off what was a magnificent session. By the way, I wouldn’t be surprised if Amazon entered the wash-and-fold laundry business since they are taking all other businesses to the cleaners.

Note: Click here to get our update on the Trucking Industry and best ideas, or contact your representative.

Today’s Session

There is a little more equilibrium this morning, but an aura of angst is palpable.   Lots of stocks are clearly oversold, but the trick is that oversold doesn’t mean they won’t get weaker before turning around.  Then there’s the questions around North Korea, which seemed to get a tacit green light from China this morning.  According to the Global Times, China should not intervene if NK launches an attack on U.S. soil and would be neutral.

NK said it would test rockets in mid-August that could land within 30 miles of Guam. 

Beyond geopolitical risk, the market is back to a catalyst-search.  It’s a long time before the next jobs report, and earnings season is coming to an end with a whimper (J.C. Penny is getting crushed this morning after posting disappointing earnings).

I will be watching this all very closely, but we aren’t going to panic, nor are we going to force the issue on this service (we may do trading ideas for those prepared to deal with wilder gyrations and ability for swift execution).

If you aren’t currently a subscriber to one of our services, contact your representative or email us at info@wstreet.com to get started today.


Comments
Time for leadership. 3 administrations kicked the can; now, unfortunately, it's crunch time. Nothing worthwhile in life is easy...that includes peace, even in the face of an idiot.

Robert Waddell on 8/11/2017 9:45:34 AM
about time U S takes a stand for America..Go Trump

john schroeder on 8/11/2017 11:47:33 AM
U.S.A. U.S.A. U.S.A. Bullies feed on fear there can be no equivocation when trying to deter them and their ambitions CP

Charles Payne on 8/11/2017 11:51:51 AM
Yes, strong words -- and even more important -- strong actions are needed to show idiots like Kim Jung-un that they can no longer mess with us. But Trump often uses brickbats on people who could be his friends -- like Senators McCain and Murkowski whom he crossed badly and that cost him passage of the GOP health care bill. What goes around comes around. He'd be far better advised to save his nasties for the Democrats who wouldn't give him the time of day anyway. The last thing Trump needs is to become a lame duck in his second two years. The Dems are on their last legs anyway, but a Dem victory in the midterm elections could give them a whole new lease on life. I hope Kelly can keep his eye on the prize instead of on his ability to talk down to all the wrong people. Without GOP unity behind the Trump agenda, this promising presidency could fail badly.

Dennis Howard on 8/11/2017 1:51:43 PM
My dad always advised his seven children that if someone bothered one of us to respond right away with more force because if you let them get away with it once, it will only get worse. I've always found this advice to be true. We're stuck with North Korea having gotten away with it not just once, but countless times.

Patricia Flynn on 8/11/2017 5:07:37 PM
U.S.A. U.S.A. U.S.A. Bullies feed on fear there can be no equivocation when trying to deter them and their ambitions CP

So does this also apply as to how to deal with Trump?

Jim on 8/11/2017 10:29:20 PM
 

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